HM Revenue & Customs’ figures show the tax gap has fallen over the last six years, from 8.3% of tax owed in the 2005-2006 tax year, to 7.1% in 2010-2011 and 7% in the latest available data from the 2011-2012 tax year.
It should be noted that, while the tax gap has fallen in percentage terms, the value did increase slight from £34bn in 2010-2011 to £35bn – mainly due to an increase in the VAT gap reflecting the rise in the standard rate of VAT to 20%.
Exchequer secretary David Gauke said: “These figures show the tax gap is continuing to fall. The vast majority of businesses and individuals pay the taxes they owe. But where they don’t it is for HMRC to challenge non-compliance fiercely, protecting money that would otherwise be lost.
“Since 2010, the Government has invested nearly £1bn in additional compliance initiatives over the Spending Review period. HMRC is on track to secure a further £44bn in tax revenues over the next two years.”
As well as tracking the tax lost through avoidance and evasion, the tax gap figures also includes, taxpayer error, the hidden economy, criminal attacks and where tax cannot be collected because businesses have become insolvent.
Edward Troup, HMRC’s tax assurance commissioner and second permanent secretary, said: “The range of non-compliance behaviours revealed by these tax gap figures underline why it is so important for HMRC to step up our wide-ranging activities against the minority who aren’t paying what’s due, whether they are SMEs, individuals, big business or organised criminals.
“This isn’t just critical for the nation’s finances: it’s also important to protect the vast majority of honest businesses and individuals from being cheated by the unscrupulous few.”
Last November, a report from the UK’s National Audit Office revealed that at the time HMRC was investigating 41,000 cases of tax avoidance, with an estimated £10.2bn at stake. The NAO also noted that, despite the large sums invested in the government department since 2010, “there is little evidence HMRC is making progress in preventing the sale of highly contrived tax avoidance schemes”.
The UK is one of very few countries to publish its estimate of the tax gap. Of the four that do, the others being Mexico, the US and Sweden, the UK’s is the lowest.